Do You Need a Business Bank Account for LLC or Startup?

Starting a small business is exciting, but navigating all the processes can get overwhelming. Do you really need to separate your personal and business finances? Yes! One of the many benefits is making tax filing easier. But do you need a business bank account? Read on to find out!

Do LLCs Need a Business Bank Account?

While you are not legally required to have a business bank account for single-owner LLCs, you could use your personal accounts to manage your business finances. However, it's strongly recommended not to do that. There are many benefits to using a business bank account right from the beginning and little downside other than keeping track of spending separately. If you have a sole proprietorship, learn more in our article Why Sole Proprietors Need a Business Bank Account.

Can I Use a Personal Bank Account for My Small Business?

While it's legal to do so, there are many reasons to separate your finances and operate a business bank account. Here are just a few:

• Credibility: A business account helps you establish a professional reputation with vendors and partners, and it will help them feel more comfortable dealing with a business that has separate business accounts
• Access special banking features: Many business accounts feature unique tools that can simplify processes, like creating invoices, creating sub-users with specific permissions, audit reporting tools, and much more
• Managing revenue: Separating accounts helps ensure business funds are used for business purposes and to track cash flow (spending and earning) effectively
• Simplified taxes and accounting: As your business grows, keeping track of all those transactions is easy with a separate account and helps simplify the accounting process, as well as tracking income, expenses, and tax deductions that come with running a business
• Future financing opportunities: A dedicated account shows your company's financial track record and can help you secure future funding like business loans or lines of credit to grow, buy equipment, and more

Do I Need to Have a Business Bank Account?

While it's not a legal requirement, it's strongly recommended to have one because it benefits businesses of all sizes, whether you're a sole proprietor or a large corporation. As outlined above, it simplifies the tax and accounting processes, builds a credible reputation, and can help you get funding in the future. In addition to those benefits, you can also gain some legal protection as it clearly separates your personal and business finances and assets, should your business encounter legal issues in the future. Consult with a legal professional for help or if you have questions about specific situations.

If you aren't sure if you need a business account, remember that if you have a business, the answer is yes. This is especially true if you want your business financials separate and organized; even for startups, the time and effort invested in setting up and maintaining a business account will save you a lot of time and effort in the long run.

Can You Have an LLC Without a Business Bank Account?

An LLC is its own entity, separate from the owners, called members, so an LLC must maintain business bank accounts to clearly show the finances owned by the business. This is essential to legally protect the members' personal finances and assets, simplify the tax and accounting process, and build credibility as a new business. Additionally, having separate accounts allows the company to build financial history, which is essential when applying for business loans and lines of credit in the future.

Disadvantages of Using Your Personal Account for Business

These are just a few reasons why using your personal account for business transactions isn't the best idea. We highly recommend using business accounts for business purposes, since it can save you time and money in the long run and you can avoid issues related to taxes and audits from the IRS, among many others.

• Potential loss of LLC protections, as it is not clear what belongs to the business and what belongs to you personally; this is known as "piercing the corporate veil," which is where a court disregards a company's separate legal identity and holds you as the business owner personally liable for the company's debts or actions
• Less credible
• Unable to conduct business transactions in the company's name
• It's difficult at best to prove separate transactions for tax purposes
• Mixing of personal and business funds (it's hard to keep track of how much it costs to run your business when your personal funds are mixed in)
• Your business name can't be printed on checks

Opening a business account doesn't need to be complicated—learn all about how to open one and what you need to do so in our article What is Needed to Open a Business Bank Account.

Why Open a Business Bank Account?

There are a few key reasons to open a business bank account, all of which help you as your business grows and for regular tasks like accounting and tax preparation.

• Keep personal and business finances separate; this is important for tax and liability reasons
• Future prospects for your business, as you can clearly show profits and expenses
• Shows professionalism and lends your business credibility
• Build financial history to increase chances of getting approved for business credit like loans or a line of credit in the future

When Do You Need a Business Bank Account?

If you have a business, you should have a business bank account. Open yours before you begin to accept or spend money, as that account will be critical when you need to show business spending and income. As time goes by, you'll also use it for transactions like vendor payments and payroll and to receive customer payments. Aren't sure where to start? Find out in our article What is Needed to Open a Business Bank Account.

Separating Your Business and Personal Finances

After your business is established and you have an EIN (Employer Identification Number) or you're all set to use your Social Security Number as a single-owner LLC, open a business bank account and apply for a business credit card. Then, you can begin accepting payments through your business bank account and spend using your business account or business credit card. Stay vigilant and only use your business-related accounts for business purposes!

Best Business Bank Account for LLC

There isn't one account that fits the needs of all businesses, so the best account for your business depends on your needs. If you're just starting out, look for a bank that has a convenient location so you can stop by when (not if) something comes up and you need in-person help. When choosing an account, consider going with a basic account, like WaFd Bank's *Free Business Checking, which has no minimum balance or maintenance fees and comes with all the things you need in a business account. This includes business online banking, the ability to place stop payments, mobile check deposit, the ability to create and manage sub-users to give employees limited access to accounts as needed, and access to many other tools and services to smoothly and efficiently run your business.

Open a Business Bank Account Online with WaFd Bank

Our knowledgeable business bankers are available to help you manage success and have the expertise to become a trusted advisor to you and your team. With products that grow with your business and comprehensive tools to seamlessly manage it all, WaFd Bank is built for business. After over 100 years, we know what it takes to help you succeed, from start to legacy. Visit your local branch or give us a call at 800-324-9375 to experience the difference WaFd Bank can make for you.

*Nonsufficient funds charge may apply.